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Glenn Profile picture
@GlennLuk
Oct 30 • 12 tweets • 4 min read • Read on X
For all the flak about "lack of a social welfare safety net", China has one of the lowest pension/retirement ages in the world.

Further, it's hard to imagine that China — a "loud and proud" socialist country — not investing significantly into its social welfare programs in the coming decades, especially as it has officially crossed the "high income" threshold.
The problem with the "China does not spend enough on social welfare" narrative-pushers is in part a data one.

A large part of its social welfare spending comes in the form of social transfers in kind (STIK) (~6-7% of GDP).

In this 2024 paper, the World Bank highlighted how "in-kind" health & education transfers are the main form of socioeconomic redistribution in China.

Any social welfare comparison that ignores STIK should be questioned.

Another ~8-10% is in the form of social insurance and direct welfare cash transfers.

The bulk of this is in the form of social insurance taxes collected out of wage income by the government, e.g. pension, unemployment, maternity, work-related injury and medical.
While some point to these social insurance taxes as a regressive/heavy tax burden, these should actually be viewed more as hybrid defined benefit / defined contribution plans with some pooling aspects and some individual aspects (e.g. annuity based directly on contributions).

Indeed, that is precisely why the pension/retirement age is lower: in exchange for higher tax withholdings during their working years, Chinese workers get to retire earlier.
If we add up STIK, social insurance and the direct welfare benefits, China's social welfare spending is in the 16-17% range, which is in line with G20 emerging markets (~15-16% under this broader definition).

The OECD average is closer to ~20-21%, but these countries are fully developed; China is still at least 10-15 years away from approaching fully developed status and has time to develop these social welfare programs further.
Hongshen rightly notes that inequality in social welfare system is triggered in large part by the urban-rural divide.

From this perspective, one of the policy drivers of capital-intensive rapid urbanization was to reduce inequality of access caused by the urban-rural divide.

One of the challenges with social welfare in a developing country is the general scarcity of resources. Tough choices need to be made.
The issue with poor rural areas is that it is typically far less efficient to provide the types of services that underpin social welfare, like housing, education and medical care.

Indeed one of the key policy goals of intensive infrastructure building was poverty alleviation and accelerating the process of urbanization so that more people could access social services.

These social welfare goals are often lost or ignored in the technical discussions about the "profitability" of LGFVs, with disproportionate weight placed on "capital inefficency" that doesn't take into account societal spillovers.

readwriteinvest.com/p/project-fina…
"Kweichow Characteristics" refers to the core idea that the financial aspects of infrastructure ("Project Finance") cannot be evaluated without also evaluating their non-financial social development aspects.

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More from @GlennLuk

Glenn Profile picture
Oct 24
Jonathon highlights what I thought was the most interesting point out of the recent communique.

I tend to look at things from a company/sector perspective, and for me this represented the CCP's effort to adapt the vast administrative bureaucracy to align with the operational and realities of shifting sectoral priorities.

Allow me to explain below in this 🧵
Property and infrastructure development were two of the key economic development priorities from the mid-2000s to the early 2020s.

Both property and infrastructure (especially "traditional" infrastructure like highways and bridges) were highly localized in nature. Land is central to both efforts, and land use falls under the jurisdiction of local governments.

Thus, it made sense for executive power to be decentralized to the local governments: Beijing simply cannot effectively manage land development in Guizhou.
This leads to a whole other set of issues, as there is a wide variation in local government competence. The manifestation of these issues has been widely discussed (e.g. LGFVs) but that is not the scope of this thread.

The question here is now that economic development priorities have shifted, how should the bureaucracy adapt from a centralization vs. de-centralization perspective?

And to do that again we need to understand how the differentiated nature of the new priority sectors map against this question of centralized vs. de-centralized administration.
Read 19 tweets
Glenn Profile picture
Oct 23
From 4th Plenum communique:

Just want to just emphasize here that Chinese policymakers still highlight domestic *demand* not *consumption*
This is important because there is a group of people that insist on confusing/conflating demand with consumption in the China context.

These are meaningfully distinct terms: Consumption is just one component of demand, alongside gross capital formation. The distinction is driven by GDP accounting definitions.
To further clarify, this is what I mean about the distinction between demand (in the context of supply) and "consumption" in the context of GDP accounting-driven split between gross capital formation / "investment" and expenditures / "consumption"

Read 6 tweets
Glenn Profile picture
Oct 22
I can see that folks are already starting to wildly misinterpreting what this chart says and this seems like another one of these Rorscarch tests on China.

Let's nip this in the bud: this is IP share of services exports, which comes from Balance of Payments accounting.
That China does not license IP is not an "indictment", it's a statistical quirk that requires some deeper understanding of the BoP and how it maps against real-world trade and investment realities.

I'm not 100% sure but my guess is that Steve is saying this shows China has minimal IP that other nations find valuable.

No; it's because China does not export much IP in license form because most of its IP gets packaged with manufactured goods.

Read 15 tweets
Glenn Profile picture
Oct 21
This was a complex/nuanced discussion on "overcapacity". Thanks for writing it @wstv_lizzi as it is an important topic.

It presented a number of interesting ideas which make sense on their own but I struggled to tie them together under a "grand unifying narrative" related to the "China Model".

The challenge of the "overcapacity" narrative is trying to use it to summarize "China Model" into a neat, compact narrative. But trying to summarize something as complex as China's economy into a neat model is exceedingly difficult.

(as an aside, the piece read like a writer struggling to force-fit an article within pre-defined narratives/framing set by an editor)

Two key problems I've found in the "overcapacity" debate that I'll go into more detail in this 🧵:

1⃣ Unclear/conflated definition of the term "overcapacity"

2⃣ As you drill down down from the macro/national level to individual sector level, you find many sector-specific idiosyncrasies that contradict core elements of "grand unifying" theme around "overcapacity".
1⃣ Defining "overcapacity" itself

"Overcapacity" has become a loaded word, especially when described in the context of the broad "China Model" in the current geopolitical environment.

In regular industrial/manufacturing usage, overcapacity is simply a state/condition where capacity utilization is below a certain "normal" threshold. This threshold may very by sector and different operating conditions.

Standard capacity utilization is defined not only by physical capital stock, but also by an active labor force operating on a normal shift schedule (typically 2 shifts per day, 5 days per week, or 80 hours / week).
But the way that it is being used in policy/economic/geopolitical discussion is in a much more undefined/amorphous way that goes well beyond the standard industry/mfg definition.

For instance, in this passage it is implicitly defined as production beyond domestic demand. But the implication here is that Chinese companies should not be able to have free access to global markets.

IOW how the term is used/defined appears to reflect implicit policy objectives of one particular side in the ongoing trade war.

Carefully inserted vocabulary like "deluge" and "sinister" peppered throughout the piece subtly signal how "overcapacity" is being normatively framed.Image
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Read 16 tweets
Glenn Profile picture
Oct 15
If you read the official court documents (link in ALT), it is very clear that the underlying reason driving the eventual takeover of the company were the prospect of escalation in U.S. trade sanctions under the 50% rule, which was officially released on September 29th.Image
A detailed timeline of the events described in the legal brief clearly show that the entire series of events were instigated by the addition of Wingtech, which indirectly owned/controlled 100% of Nexperia, to the Entity List. Image
To characterize the primary reason for the takeover as "financial misconduct" ignoring that the the "financial misconduct" was directly linked to Wingtech's addition to the Entity List is highly misleading and disingenuous.
Read 20 tweets
Glenn Profile picture
Oct 14
No. The reason why it has a monopoly today is because China has:

(i) made significant technology and process advances that effectively isolate/mitigate the effects of the environmental damage — concentrated in the up/midstream mining and separation phases — on society, and

(ii) invested in human capital / specialized manufacturing equipment and optimized steps in the downstream processing stages, including deep integration with end-product manufacturing (e.g. permanent magnets which make up the bulk of use cases by economic value)

Whether simply ignorance or worse, inability to recognize — e.g. by implicitly attributing it on Chinese society simply having a higher tolerance for pollution through this type of moral grandstanding 👇 — is frankly one of the key reasons why minimal real progress has been made to address a strategic vulnerability that has been known for decades.
I'd once again encourage folks to listen to this podcast from @twittwoods who has been studying the development of China's rare earths industry and was really the first one to clue me into just how much investment has bene made to raise environmental standards, especially since the mid-2010s.Image
Listen to the podcast here:

Read 10 tweets

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